NVDA - Snowflake rises as Wall Street sees 'favorable' risk-reward after investor day

2023-06-28 07:31:20 ET

Snowflake ( NYSE: SNOW ) shares rose more than 1.5% in pre-market trading on Wednesday as Wall Street analysts said they see a "favorable" risk-reward scenario for the stock after the company held its annual developer conference and investor day.

William Blair analyst Jason Ader resumed coverage on Snowflake ( SNOW ) shares with an outperform rating, noting the company is not only a leader in the analytical database market, but checks show its platform "is the easiest to use" and its consumption model allows for a "transparent view of customer engagement and macro conditions."

Additionally, the Frank Slootman-led Snowflake ( SNOW ) has a "best-in-class" net revenue retention, indicating how sticky the platform is; the company is continuing to add new products, leveraging its data cloud platform and it should see "strong tailwinds" from generative AI, as validated by the recent Nvidia ( NVDA ) partnership .

"We note that Snowflake’s runway within data warehousing alone remains extensive (only 30% of the Global 2000 are customers) and its $10 billion target for fiscal 2029 assumes less than 5% coming from up-the-stack monetization opportunities," Ader wrote in an investor note.

"Combining this expansive growth runway with improving operating leverage (e.g., non-GAAP operating margin and free cash flow margin targets for fiscal 2029 were raised by 5 percentage points each) and the potential for growth to reaccelerate as we exit a period of significant cloud optimizations, we see a favorable risk/reward equation for the stock."

After attending the Snowflake Summit and investor day, Ader said he had a greater appreciation for Snowflake's ( SNOW ) opportunity and strategy to go beyond data warehousing and help build new, AI-based apps.

Morgan Stanley analyst Keith Weiss, who has an overweight rating and a per-share price target of $215, noted that while the AI narrative does not offset the volatility of the consumption model, it does give visibility into expanding into a $290B total addressable market.

"...[W]hile the consumption model adds volatility, it will also show improving demand trends the faster – with a flattening of the second derivative on enterprise spending growth in the near- term and an expanding long-term opportunity (well positioned for Generative AI), Snowflake remains one of our favorite names in software," Weiss wrote in an investor note.

Weiss also noted that Snowflake ( SNOW ) management was bullish on its expanded partnership with Microsoft ( MSFT ) as it doubles its spend commitment on Azure, making it Snowflake's fastest growing hyperscaler partnership.

Management was also positive on the continued expansion of its customers, along with improving consumption trends in June and the continued strong adoption of DataFrames in Snowpark.

More on Snowflake

• Snowflake: Long-Term Moat Assessment
• Snowflake: Accelerating Our Reality Upload Despite Macro Headwinds
• Snowflake rises as it announces Nvidia partnership for generative AI apps

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